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July 26, 2017

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Morgan Stanley upbeat on Taiwan's financial stocks

TAIPEI--Morgan Stanley has expressed optimism over the performance of the financial sector in Taiwan in 2014 as last year it reported the best profitability since the 2008 financial crisis.

In a recent research note, Morgan Stanley said the local financial sector's bottom line will continue to improve in 2014 on expectations that interest rates will gradually go up to boost their interest income.

After the U.S. Federal Reserve started scaling back its monthly bond buying program in January by taking encouraging data into account, there have been signs that interest rates at home and abroad are moving higher, market analysts said.

Some analysts have even anticipated that the local central bank will kick off an interest rate hike cycle later in the year. In a quarterly policymaking meeting held in late December, the bank left its key interest rates unchanged for 10 quarters in a row.

Morgan Stanley said the local financial sector will benefit from a recovery in the local economy this year, when domestic exporters need to secure more loans from banks for expansion to meet rising global demand.

Taiwanese banks will also see their overseas lending grow this year as they have a better chance of extending loans in China, where fund supplies remain tight, the brokerage said.

It added that it is upbeat about warming financial exchanges across the Taiwan Strait. It noted that the local financial sector is expected to strengthen its profitability on the back of growing business opportunities from China.

In addition to interest income, Morgan Stanley said, the local banking sector is expected to benefit from higher growth in fee income which could rise at a high single-digit pace this year as consumers here prefer to buy investment instruments to lock in higher returns than bank deposit interest.

Among the stocks in the local financial sector, Morgan Stanley has suggested investors pick Fubon Financial Holding Co. and Mega Financial Holding Co. It issued a target price of NT$47.3 (US$1.58) and NT$20 on Fubon Financial shares and Mega Financial shares, respectively.

In 2013, Fubon Financial retained the title as the most profitable financial holding company among the 15-listed financial holding companies in Taiwan by posting NT$32.69 billion in net profit or NT$3.31 in earnings per share (EPS), up from NT$28.98 billion or NT$3.05 EPS recorded in 2012.

It was the fifth consecutive year for Fubon Financial to rank as the most profitable listed financial holding firm in the sector.

For its part, Mega Financial posted NT$22.48 billion in net profit last year, up 4.5 percent from a year earlier. Its EPS stood at NT$1.96.

Morgan Stanley said as financial stocks have made up a relatively small portion of many investors' investment portfolios, it is time for them to raise their holdings in the local financial sector.

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